How Does Equity Release Work?
What is Equity Release?
Equity release is a way for homeowners, over the age of 55, to release cash from their property. How much you can release depends upon the market value of your home and how old you are. You can benefit from either having the cash as one lump sum, or smaller, regular payments.
How Can I Use the Money from Equity Release?
You can choose how you’d like to use the money you release but it can be used for many things including:
- Travel
- Carrying out home improvements or adaptations
- Paying off debt
- Helping family on to the property ladder
- Pay for private medical bills or for home care
Some lenders let you protect part of your home's value as an inheritance for your family. However much you choose to protect, won’t be involved when the amount you borrow is calculated. We can provide you with further guidance on this.
What are the Benefits of Equity Release?
Equity release will reduce the value of your estate and may affect means-tested benefits. With a lifetime mortgage, interest is usually added to the loan and compounds, so the amount you owe can grow quickly. The possible benefits include:
- You can remain in your home
- The money released is tax-free
- Some plans let you protect part of your home's value as an inheritance
- Most plans include a 'no negative equity guarantee', so your estate will not owe more than your home sells for
- You don’t need to pay back the loan until you are moving into long-term care or pass away.
What Are the Different Types of Equity Release?
There are two main equity release product options, which are:
Lifetime Mortgage: This is the predominant form of equity release. Lifetime mortgages are secured on your home, whilst you still keep ownership of it. You have the choice of making repayments, or simply allowing the interest to roll over. The loan will then be paid back upon death or when the borrower moves into long term care.
Home Reversion Plan: This means that you sell all or part of your property to a home reversion provider, who will then either give you regular payments or a lump sum. You can still stay in your home until you pass away but you are obligated to insure and maintain it. You can also allocate a part of the property for another use, such as inheritance, by only selling part of it. The amount of property you keep will stay the same, even if the value of the property changes, or you decide to release more equity from it. When the final borrower has passed away, the proceeds of the sale are then shared depending upon the remaining percentages that are owned.
Equity Release Questions and Answers
How old do I need to be for equity release?
To be eligible for equity release, you must be a minimum of 55 years old. However, this can depend upon your provider. There is no official upper age but this may also be dependent upon the provider.
How long is the equity release process?
The process normally takes between 8-12 weeks, though it will depend on the service and who is providing it.
How do I repay equity release?
Generally, equity release is paid once your property has been sold after you either move into long-term care, or you pass away. You can also choose to pay the interest early. It is worth knowing that different products will have different restrictions on how much can be repaid and how often you can make repayments. We can explain which options may suit you.
What is a no negative equity guarantee?
This means that when you sell your property, and the relevant fees have been paid, that if the leftover amount isn’t enough to repay the loan to your provider, you won’t be obligated to pay any more.
What’s the interest rate on equity release or lifetime mortgages?
With most lifetime mortgages you do not have to make monthly repayments. Interest is added to the loan and compounds, so the amount you owe grows over time, and it is usually repaid when your home is sold. Some plans let you pay some or all of the interest if you wish.
Should I have equity as a lump sum or regular payments?
When you get a lifetime mortgage, you have the choice of having it either as a lump sum or having regular small payments. This means that instead of one large amount, you will only pay interest on what you need to borrow.
How much does equity release cost?
Equity release may incur various costs including:
- Legal fees
- Arrangement fees
- Valuations fees
- Broker fees
- Insurance
- A completion fee
Costs vary by plan and provider. We will explain our fee before we start any work. There may also be a separate early repayment charge.
How Do I Arrange Equity Release?
If you would like to answer the question 'how does equity release work?', or to start the process, contact the friendly team at Transparent Mortgage Services today. We will explain your options, the costs and the risks, and only recommend a plan if it is suitable for you. We will also make the process streamlined and simple for you.
